US-Iran freeze puts India's Chabahar port project in a fix

The deteriorating relations between the United States and Iran, coupled with the threat of return of sanction regime, have once again put India in a fix.

Government officials confide that pace of work on projects such as Chabahar port and building railway and road networks would get affected if the US President Donald Trump operationalises his threats against Tehran. Sources said the issue will prominently figure during the October 24 visit of US Secretary of State Rex Tillerson.

What is worrisome is that ahead of Tillerson's visit, a top US official has asked countries to take a hard look at their business partners in Iran. "What we're asking is for countries to take a hard look at who you're doing business with in Iran and to understand who are the beneficial owners of these companies," the official said, warning against business deals with Iran's Islamic Revolutionary Guard Corps-controlled companies.

Recently, while deposing before a parliamentary panel, officials conceded that the Iran-Pakistan-India gas pipeline project hasn't moved forward since 2008 in the wake of sanctions on Iran.

Prime Minister Narendra Modi had prioritised the connectivity project in Central Asia and the Chabahar port in Iran to provide a key route to Afghanistan, while bypassing Pakistan.

During his visit to Tehran last May, Modi had promised to accentuate work on Indian commitments and develop two terminals and five berths at Chabahar port located on the Gulf of Oman, within 18 months. India and Iran are simultaneously also developing the International North South Transport Corridor (INSTC) together with Russia, connecting the Gulf of Oman to Central Asia and Eastern Europe. These projects are crucial for India as they present an alternative to China's One Belt One Road initiative and also a counter to Gwadar in Pakistan's Balochistan.

But the sanctions slapped by the Trump administration and threats of more sanctions has put India's diplomats in a quandary. Though none of the 12 companies put on the US sanction list recently have any business with India, Ministry of External Affairs (MEA) fears that the prospect of their expansion has potential to hit the port as well as the Special Economic Zone (SEZ). The agreement (Joint Comprehensive Plan of Action or JCPOA) between Iran and P5+1 on Iran's nuclear programme and the corresponding easing of sanctions, concluded last July, has provided the long-awaited opening for India.

Iranian Ambassador in New Delhi Gholamreza Ansari recently accused the US of trying to ensure that India reduced oil imports from his country. "The US wants to deprive Iran of the Indian energy market," he said. India has cut its oil imports from Iran by approximately 20% in 2017, though its global imports have risen by 5.4%. Some companies, such as Essar oil, have dropped imports from Iran in August by as much as 75%, according to oil industry estimates.

The US has made it quite clear that countries doing business with Iran should ensure that their economic relationships with Iran do not lead to the strengthening of the IRGC in particular and their ability to do so much harm to so many people.

Under previous Western sanctions, India had devised a barter-like scheme acceptable to Washington that allowed it to make some oil payments to Tehran in rupees through UCO Bank. But since sanctions were partly lifted early last year, the rupee account has been run down by more than 90% to just Rs 2,000 crore ($305 million) because Indian refiners have resumed paying for Iranian oil in Euros. Sources here say as the tensions re-emerge, India was looking at reverting to the old rupee mechanism.

Officials here said the government was still in a wait-and-watch mode and closely monitoring Trump's approach towards Iran. But they concede that of late, reports of western manufacturers shying away from supplying equipment for the Chahbhar port for fear the fresh sanctions are hitting New Delhi's strategic ambitions in the region.